Adventures in Legal Outsourcing to India and Beyond

September 2008

September 21, 2008

Outsourcing
is a hot-button issue in the 2008 United States election campaign.Anyone involved in the outsourcing industry
has now heard of the pledge by Presidential candidate Barack Obama to “take
away tax breaks to companies that ship jobs overseas.” Other U.S. candidates
have made similar statements.I was
curious.Could the United States really
be providing tax incentives to outsource U.S. jobs?What country would?Seriously, what tax breaks are they talking
about?In actual fact, research shows
that there are no U.S. tax breaks for sending jobs overseas. This tax break
myth is just so much political rhetoric (et
tu, Barack?), and the reality is far different.

While tax
breaks for off-shoring of jobs do not exist, what does exist is a provision in
the U.S. tax code that allows U.S. companies earning profits in a foreign
country to defer payment of corporate tax in the United States until those
profits are repatriated.If the profits
remain abroad and are reinvested there, the company can more or less avoid the
(very high) corporate taxes in the United States. And this is what many companies do when they
set up operations overseas, regardless of whether this involves outsourcing of
jobs.Although in many cases this does
result in a loss of some blue collar manufacturing jobs in the United States
and creates a lot of resentment among the voter pool, it also keeps U.S.
companies competitive in countries where the corporate tax rate is much lower.

The
above-mentioned U.S. provision has been in place for decades, and the setting
up of overseas operations by American corporations is an economic reality that
cannot be turned around merely by changing the tax code.Simply put, those American companies with
manufacturing and service set-ups abroad haven't made these arrangements to
take advantage of the tax deferral.They
have done it because of lower operational costs, or because of the proximity to
target markets, or for other reasons that may have nothing to do with tax
breaks or outsourcing of jobs.Changing
the tax code to remove the deferral will only create a barrier that will reduce
the ability of U.S. companies to compete in today's global marketplace. If the U.S. government offers incentives and
tax credits to companies that create more jobs for the American workforce, that
might help a bit.But then again, those
benefits would have to be enormous to outweigh the benefits of offshoring.Big news at the moment is how the television
ratings giant, Neilsen Co., has actually given up local tax breaks in Florida
after signing an outsourcing deal with Tata Consultancy Services in Mumbai.

If you Google
“outsourcing” and “tax breaks,” what will you find?Page after page of references to Senator John
Kerry.You don't remember John
Kerry?He was the Democratic
Presidential candidate in 2004.He laid
out a firm plan to end the tax deferral system. He intended to change the tax
code so that U.S. companies would have to pay taxes on profits earned overseas
with no deferral. He then intended to use the increased tax revenue to reduce
the U.S. corporate tax rate from 35% to 33.25%. The same Google search will
also bring up page after page of expert opinions on how Kerry's plan would have
done nothing to change the economic realities of setting up operations abroad.
The benefits of a presence in foreign markets would far outweigh a marginal cut
in the U.S. corporate tax rate. That reality still stands.

And what about
companies that outsource only certain divisions --like customer service, tech support, legal
and IT -- to foreign companies by contract?U.S. companies that outsource in this way receive no tax breaks or tax
deferrals.So eliminating these tax benefits
will have no effect on this sort of “white collar outsourcing.”

The business
lobby in Washington D.C. probably would succeed, as it has done before, in
preventing any removal of the tax benefits discussed above.Also, neither the Democrats nor the
Republicans have ever proposed any legislation that actually would abolish or
even restrict outsourcing by private companies.Even if Obama
and Biden prove to be the force for change that they seem to be (if they win!),
the decisions on outsourcing will not rest in their hands.Businesses, large and small, will continue to
do what they believe is best for survival and growth.

On the “law
business” front, the recent American Bar Association ethics opinion on legal
outsourcing is being quoted everywhere these days.Says the ABA: “The outsourcing trend is a
salutary one for our globalized economy.” That's quite an affirmation.And it's quite true.The popular misconception is that outsourcing
always means job loss and a windfall profit for the company doing the
outsourcing.Although no one should
discount the hardship and uncertainty faced by an individual who has lost his
or her job, nothing is that black and white.A more accurate perspective is that for companies, it is often a matter
of staying afloat or struggling to grow, not getting windfalls, and with regard
to jobs – when economies are not stifled by protectionism – job losses and
gains tend to balance out.If certain
jobs are lost in the U.S., they are created in India or China, thereby creating
new wealth in those countries and a huge new market for American goods and
services – a market that is now even bigger than the market in the U.S.When those economies flourish, we also see
Chinese and Indian companies setting-up shop in America – creating jobs. The
United States economy no longer stops at that country's borders.Globalization – as ubiquitous and cheesy as
the word has come to sound – is what it's all about.A corporation cannot remain competitive by
keeping all its operations, markets and support in one country.

So is the
anti-outsourcing crowd guilty of hypocrisy?If outsourcing is so bad, then, by their own logic, should they not also
be opposed to outsourcing from foreign countries to the U.S.?According to the Council of American States
in China, over thirty U.S. states have officers or representatives in China,
trying to persuade Chinese companies to set up operations in the United
States.And indeed, many Chinese
entrepreneurs have set up operations in the U.S. and have hired Americans.So have Indians.Steel magnate Sunil Bharti Mittal told Hillary
Clinton last year, when he led a delegation of the Confederation of Indian
Industries CEO, about the new trendof
“reverse-outsourcing.”Recently, we at
SDD Global Solutions in India have seen this first-hand when we helped a large
Indian company set up its operations in the United States.So it isn't all bad, is it?If you look at the big picture.

Just like the
U.S. economy – and a hat-tip to the name of this blog – law is without borders
these days.A high-quality lawyer in
almost any country in the world can handle legal work in almost any other
country – given sufficient time and resources.Let's focus on the trend of sending legal work from the U.S., the U.K.
and Canada to India, sometimes called "legal process outsourcing."Lawyers and
paralegals in the U.S. and U.K. who feel that offshoring legal work only
benefits BigLaw and corporate legal departments are mistaken.Large law firms and corporates definitely see
lower costs, higher efficiency and improved productivity.Some large law firms also continue to charge
their clients the exorbitant fees that offshoring is supposed to reduce, and
corporations, as always, need to keep their eye on the bottom line.But small law firms and solo practitioners
can benefit too.As noted by the ABA in
its Opinion on legal outsourcing, specifically with regard to small firms and
solo lawyers “who
do not otherwise maintain the needed human resources on an ongoing basis,”
outsourcing can allow them “to handle a large, discovery-intensive litigation”
and otherwise “represent a client in such a matter effectively and efficiently.”

When the idea
that legal work must always be expensive and time-consuming falls by the
wayside, thanks to offshoring, more and more legal work will come in.In the news last month was the fact that the
UK-based law firm, Eversheds, signed an outsourcing deal with an Indian legal
service provider, which will handle the drafting of commercial contracts for
deals that normally would be too expensive, legal-wise, to pursue. The
Eversheds spokesman pointedly noted, referring to the outsourcing of these
matters to India, that “[i]t’s not taking work away from anyone.It’s actually creating work out of contracts
that would ­otherwise sit in a metaphorical drawer.”And it’s work that will be supervised by
Western lawyers, adding to their revenue.

At SDD Global we've seen, and in fact we’ve been one of the causes of, this creation-of-work
phenomenon.A Fortune 100 client of our
managing law firm, SmithDehn LLP, specifically requested that the legal
research and analysis needed for a series of multi-million-dollar deals in the
U.S. be done by Indian attorneys at SDD Global.This is yet another situation where, if not for a Western law firm’s
outsourcing capabilities, no lawyers would have been hired, because typical
Western legal fees would have made it prohibitive.The work would have been done either
in-house, or not at all. As noted in
other posts on this blog, a similar thing has happened in litigation, where
corporate clients have chosen to defend themselves against meritless lawsuits,
using U.S. and Indian lawyers.Without legal
outsourcing, there would be no lawyers hired for any significant work at all,
because the cases simply would have been settled at the outset, just to avoid
the usual U.S. litigation costs.

Indeed, when
it comes to litigation, it would seem that offshoring of legal work will create
a kind of automatic tort reform.Defendants facing bogus or inflated tort claims can choose to litigate
instead of settle. This will discourage frivolous lawsuits, while maintaining
the ability of legitimate plaintiffs to pursue their claims.After all, no sensible corporate defendant
would refuse a reasonable settlement of a meritorious claim.Even if the costs of litigation are reduced,
outsourcing still does not allow defendants to win cases when the plaintiffs
are right.To the contrary, legal
outsourcing can be used by lawyers for legitimate plaintiffs to pursue cases
that have merit, without worrying as much about the cost, or about a lack of
resources to support the litigation. As
for the frivolous or weak plaintiff’s cases, all the money that otherwise would
be spent by defendants on nuisance payouts can be plowed by corporations right
back into the economy.And yes, some of
that money will flow through the pockets of Western lawyers who are smart
enough to use legal outsourcing to get work that otherwise would not exist.

Politics and
the economy, the economy and business, business and cost-cutting, cost-cutting
and lay-offs, lay-offs and politics. And
somewhere in the middle of all that, the creation of new work and new jobs
through outsourcing. One of the world's
many circles – not vicious; not benign; just there. Come January 20, 2009, the campaign rhetoric
will end, and the job will begin. We'll
know whether Obama or McCain will be hired by the electorate to deal with the
big picture, and we in India will hope for the best for our 'Murkin
friends. In the meantime, and after,
we’ll continue to work for our U.S., U.K. and Canadian clients. Because they will continue to outsource.

September 12, 2008

And now, an update on what the "Above the Law" blog refers to as "the rapidly growing practice area of Boratlaw." As
production counsel for "Borat: Cultural Learnings of America for Make
Benefit Glorious Nation of Kazakhstan," it is my distinct pleasure to
report that the last three of the lawsuits by people in the film have been
dismissed. In a decision by United States District Judge Loretta
Preska, which you can read by clicking here,
the federal court in Manhattan threw out the claims of the two Alabama
etiquette coaches, the Alabama dinner guests, and the Maryland driving
instructor. This follows other victories, in courts across the
country, against claims by the South Carolina frat boys, the fleeing
New York hedge fund manager, the two Romanian villagers, and the South
Carolina toilet man. In Sacha Baron Cohen's hysterical acceptance speech
upon receiving Golden Globe Award for Best Comedy, he said, among other
things, "I want to thank everyone in America who hasn't sued us yet."

Last year, I had the strange experience
of flying to Los Angeles from India to attend a packed forum of several hundred media
and entertainment lawyers organized by the Beverly Hills Bar
Association. The event was amusingly titled, "This Release Is
Binding....Nottt!" At the forum, the general counsels of the ABC and
CBS television networks debated the lawyer for the frat boy plaintiffs, regarding
the validity of the Borat consent agreement that I drafted for the
Borat participants to sign. The BHBA will need to change the title for
the next forum. How about "These Lawsuits Have Legs....Nottt!"

In
throwing out the last of the claims, Judge Preska upheld the validity
of the consent agreement, just like all of the other judges have done. The Court went on to note as follows:

"At
its core..., Borat attempts an ironic commentary on 'modern' American
culture, contrasting the backwardness of its protagonist with the
social ills that afflict supposedly sophisticated society. The movie
challenges its viewers to confront not only the bizarre and offensive
Borat character himself, but the equally offensive and bizarre
reactions he elicits from 'average' Americans."

Hmmm. In any event, it seems that another backward, offensive, and bizarre protagonist,
President Bush, might be a closet Borat fan. The day after Judge
Preska's decision, he nominated her for a position on the United States
Court of Appeals for the Second Circuit.

Finally, on the subject of "legal process outsourcing," as always, I want to put in a plug for the team of Indian lawyers at SDD Global Solutions in Mysore, who put in hundreds of hours in the multi-faceted field of Boratlaw. Congrats also to Hogan Hartson, which expertly handled the New York litigation.

September 03, 2008

Below is a comment just posted by Joseph Hennessey on this blog. He's the lead lawyer in the case against legal process outsourcing in Washington D.C. federal court, Newman McIntosh & Hennessey vs. Bush, which was withdrawn only a few days after the filing of a motion to dismiss. Hennessey now says he's busy hunting for "those who have been victimized by the use of
foreign legal process outsourcers," so he can file "an action for damages on a class wide basis." But judging from the first "example" he's found, where Indian doctors allegedly were used to assist in a surgery that "went horribly wrong," it looks like he still has more plaintiff-searching to do. If anybody can see a connection between this allegedly botched surgery and legal outsourcing, please let us know!

Meanwhile, Hennessey also is threatening to file an ethics complaint, due to the fact that four Indian legal professionals at SDD Global Solutions are credited by name in the motion to dismiss Hennessey's first lawsuit. The motion was signed and filed not by SDD Global, but by an attorney admitted to the bar of the D.C. federal court. Yet Hennessey claims that the legal research and drafting done by the Indian team amounts to "the unauthorized practice of law." What an odd position to take, given that summer associates, paralegals, new-hires, and others not admitted to the bar perform legal research and drafting at every major law firm in the U.S., and often are credited at the end of legal papers in an "on the brief" section. I'm getting the feeling that Hennessey really does not like the outsourcing of legal services to India!

Here's his comment about the new lawsuit he's concocting:

Joseph
Hennessey has joined John J. Beins and Seth D. Goldberg who have
significant expertise in litigating consumer class action lawsuits --
as well as other business litigation. John Beins, Seth Goldman, Anthony
Newman, Ernie McIntosh and I will be combining our various areas of
expertise to identify those who have been victimized by the use of
foreign legal process outsourcers. Collectively, we decided that rather
than litigate an academic declaratory judgment action, we would bring
an action for damages on a class wide basis. We have, for example,
already heard a person who believes their HIPAA rights were violated
when Indian doctors were video-conferenced to consult and make
recommendations about a surgical procedure -- a procedure that went
horribly wrong. Not only did this person not consent to consultation, but all of this
persons private medical records were transferred to these Indian-based
doctors -- a transfer that violated her HIPAA rights. So, stay tuned --
we are not at the end of this issue, we are at the beginning.